Circuit City

(CC) - Get Report

fans are nothing if not stubborn.

Shares in the Richmond, Va., seller of home electronics are on the upswing as Friday morning's third-quarter earnings report approaches. Investors continue to buy the stock even as evidence mounts that Circuit City's turnaround plan hasn't allowed it to make significant inroads on rival

Best Buy

(BBY) - Get Report

.

Indeed, Circuit City warned Monday of a sharp same-store sales decline. Just two days later, Best Buy posted another huge quarter.

Yet Circuit City shares have risen 5% this week -- while Best Buy's are off slightly. The divergence in the two firms' shares casts an odd spotlight on Friday morning's report, when analysts expect Circuit City to lose 8 cents a share.

To some degree, the Circuit City rally adds up. With consumer electronics viewed as a sweet spot for holiday spending, traders want some exposure to the space.

"It definitely seems like the market is anticipating a pleasant surprise" from Circuit City, said Bernstein analyst Colin McGranahan. "Maybe people think all the bad news is already built in to the stock price."

There has been no shortage of bad news at Circuit City. It said Monday that same-store sales, those at stores open for at least a year, fell 4.3%. Total sales increased 3.8% to $2.50 billion, but Wall Street had expected revenue of $2.6 billion.

Meanwhile, Best Buy posted another robust quarter, showing a 3.2% gain in same-store sales -- indicating it is still stealing market share from the likes of Circuit City.

Next year is expected to bring more of the same. Wall Street thinks Circuit City will post 7% sales growth for 2004 and 6.7% in 2005. Best Buy, by contrast, is expected to post 12% top-line growth this year, followed by 10.4% in 2005.

Perhaps the most bearish indicator for Circuit City is that even at Best Buy, the latest quarter's news wasn't uniformly good. Chief Financial Officer Darren Jackson said CD and DVD volume looked soft due to weak selection of new releases and rising gas prices,in a conference call with analysts Wednesday.

"That's not like the bottom fell out," Jackson said. "It's just less robust than it was."